Banks Must have Flex­i­bil­ity to Re­jig Bad Loans: Jait­ley

FM says two key laws to be amended to em­power lenders to re­cover dues

New Delhi: Fi­nance Min­is­ter Arun Jait­ley backed the cre­ation of a “po­lit­i­cal and eco­nomic” en­vi­ron­ment that will en­able pub­lic sec­tor banks to go af­ter bad loans, pledg­ing a struc­ture that will em­bolden them to ham­mer out set­tle­ments with­out fear­ing the in­ves­ti­ga­tion of such deals later on. Jait­ley also said two key laws would be amended to fur­ther em­power banks to re­cover their out­stand­ing dues. “We have to cre­ate both po­lit­i­cal and eco­nomic en­vi­ron­ment for banks to have a healthy re­cov­ery. And that can’t take place in an en­vi­ron­ment of sus­pi­cion,” Jait­ley said in an in­ter­ac­tion in New Delhi on Mon­day. “Busi­ness losses caused the twin bal­ance sheet prob­lem. So you have to ad­dress the sec­tors and re­verse the cy­cle, I think that’s more im­por­tant. And, banks must have the flex­i­bil­ity to set­tle,” the fi­nance min­is­ter said, as­sert­ing that such set­tle­ments shouldn’t be re­garded with sus­pi­cion.

The gov­ern­ment will strengthen the leg­isla­tive frame­work to help clean up the bal­ance sheets of pub­lic sec­tor banks.

“We are go­ing to amend the Sarfaesi (Se­cu­ri­ti­sa­tion and Re­con­struc­tion of Fi­nan­cial As­sets and En­force­ment of Se­cu­rity In­ter­est) and DRT (debt re­cov­ery tri­bunal) laws in or­der to make re­cov­er­ies faster, so they have to come in tune with the bank­ruptcy law,” Jait­ley said. These will strengthen the bank­ruptcy law, which is ex­pected to be passed in the sec­ond half of the Bud­get ses­sion. He said bank man­age­ments can be em­pow­ered to seek set­tle­ments by amend­ing the Pre­ven­tion of Cor­rup­tion Act and cre­at­ing an om­buds­man­like mech­a­nism.

“These both to­gether will help. This would be a body which would cush­ion bank of­fi­cials on set­tle­ments,” he said. ET re­ported on Mon­day that the gov­ern­ment was con­sid­er­ing the es­tab­lish­ment of such a body.

Gross non-per­form­ing as­sets (NPAs) of state-run banks more than dou­bled to 6.78% of to­tal loans at the end of De­cem­ber 2015 from 3.22% at the end of FY13.

Jait­ley said In­dia is un­der­go­ing a burst of re­forms com­pa­ra­ble with those un­veiled a quar­ter of a cen­tury ago.

“Each of the steps, whether in di­rect tax, in­di­rect tax, FDI (for­eign di­rect in­vest­ment) re­forms, auction rather than dis­cre­tion — each one of them is a big- bang step and when the his­tory of re­forms is writ­ten, post-’91, ir­re­spec­tive of what hap­pened in 1991, this will go down as (among) the most im­por­tant phases of re­forms,” he said.

Asked if re­form of pub­lic sec­tor banks was pos­si­ble with­out change in own­er­ship, he said the coun­try’s po­lit­i­cal opin­ion wasn’t ready for it.

“Why should I the­o­ret­i­cally em­bark upon an area for which the polity is not ready? I think the politics is ready for pro­fes­sion­al­is­ing their man­age­ment, for hav­ing board-gov­erned banks, for hav­ing con­sol­i­da­tion, for more com­pe­ti­tion from pri­vate sec­tor, for more pub­lic sec­tor banks be­ing run as pri­vate sec­tor banks,” he said.

The fi­nance min­is­ter, who leaves for the IMF-World Bank meet­ings on Tues­day, said the econ­omy is mov­ing in the right di­rec­tion. “We have re­formed, we are spend­ing more, we are spend­ing in the right di­rec­tion and we are stick­ing to fis­cal pru­dence. We are do­ing all the right things in a global en­vi­ron­ment which is not friendly. So, as­sum­ing these things had hap­pened in a friend­lier en­vi­ron­ment, you’d cer­tainly be grow­ing much faster,” he said.

The fi­nance min­is­ter said the econ­omy is mov­ing in the right di­rec­tion